In the middle of a heat wave, around 5 p.m. when people begin arriving home from work and electricity demand spikes, a power outage often follows suit. But what if there were a way to prevent demand-driven blackouts without spending billions of dollars? That sort of electric grid silver bullet exists, it turns out, and it’s called demand response.

When it was constructed during the 20th century, the U.S. electric grid represented a feat of American engineering, supplying power to hundreds of millions of people. After decades of neglect, however, the grid needs significant investment to meet demand from a growing population, with such upgrades potentially requiring hundreds of billions of dollars to implement, according to a study from the Rocky Mountain Institute.

Demand response provides a means by which consumers and large energy users—businesses, manufacturers, and government agencies, among others—can help prevent power outages by voluntarily curbing their energy use during periods of increased electricity consumption. Though first introduced decades ago, demand response has become more popular in recent years as utilities and power grid operators have sought to develop a more diversified approach to improving electric grid reliability.

Comverge, a Georgia-based provider of intelligent energy management systems, is one of a growing number of businesses that delivers demand response programs for clients like Pepco Holdings. Because Comverge focuses on both residential and industrial demand response, it works with all kinds of utility customers, says Jason Cigarran, the company’s vice president of investor relations and corporate communications.

“What Comverge does is install technologies or control switches that control people’s air conditioners, their hot water heaters, or their pool pumps,” Cigarran says. “Since we’re giving people access to that data, they’re able to shut down or curtail their own electricity usage—whether it’s a residential AC unit or a large industrial costumer that would have a variety of approaches to managing their energy.”

It’s typically easy to get new customers to sign up, Cigarran says, because they are literally paid to participate. There are also a number of additional benefits that come from joining a demand response program. “There is always a financial incentive, and it varies by program,” Cigarran explains.

“How they work historically is that we will partner with the utility and actively market the program to participants through a variety of channels like direct mail, e-mail, billboards, and bill stuffers. When they agree and enroll in the program, they get a financial incentive, which can be a one-time lump sum, an annual payment, or something different. We then go to that person’s home or office and install either a switch on the outside of their homes and attach to one of their high-energy appliances, or we’ll install a smart thermostat inside.”

The industry as a whole has increasingly embraced the smart thermostat route, Cigarran says. That’s because smart thermostats are connected to the Internet, offering homeowners and other endpoint users the ability to control their energy use remotely from their smartphones, tablets, and computers. Demand response therefore allows consumers to compound savings by both collecting financial incentives and cutting electricity usage.

“It’s an extremely effective resource, and we’ve been doing this for more than 30 years and it’s just getting smarter” Cigarran says. “Traditionally, it’s used paging networks, which are a one-way communications channel that’s still very effective. With two-way Wi-Fi thermostats, however, you automatically know if the device is online and if it’s working, and then you can get the feedback of how it’s performing. It’s been a very effective mechanism for utilities from a capacity perspective, because it provides an additional form of capacity without having to build power plants.”

By utilizing demand response programs, utilities—either municipal or large, public ones—are able to lower overall energy use, which then allows them to reduce power generation on the backend. When broadly deployed across a utility’s customer base, Cigarran says, demand response leads to significant cost savings for customers.